China should lower M2 growth goal: central bank department

Published December 20, 2012

| Reuters

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BEIJING – China should cut its money supply growth target in coming years to prevent long-term inflation pressures building as the country's economic growth cools, two officials from the central bank said in remarks published on Thursday.

"The policy target for M2 growth should be set lower as China's economy enters a stage of structural reform and demand for money and credit also drops accordingly," Wang Yi and Shi Chunhua, who work for the central bank's statistics department, wrote in an article published in China Finance magazine.

The figure of M2, a broad measure of money supply, has grown rapidly in China over the past decade, bringing the country's current M2 to GDP ratio to 180 percent, much higher than many developed countries, including the United States and Japan.

Analysts say rapid M2 growth has been a key factor driving up inflation and asset prices in recent years.

Effectively the central bank has been scaling back its money supply target. Beijing set a goal for M2 growth of 14 percent in 2012. M2 grew 14.7 percent in 2011 and has eased from a peak of 26.5 percent in 2009.

The two central bank officials said a slowdown in the accumulation of foreign exchange reserves and the expansion of domestic bond markets also reduced the need to create base money in the banking system.

Separately, the Chinese Academy of Social Sciences - China's top policy think-tank - recommended an M2 growth target of around 15 percent and a 16 percent target for loan growth in 2013, according to a report by the official China News Service.

China's M2 money supply grew a slower-than-expected 13.9 percent in November from a year earlier, while outstanding yuan loans in November rose by 15.7 percent from a year ago.